The multibillion-dollar rush to scoop up land for natural gas exploration in British Columbia has come to a sudden halt, as energy companies almost completely abandon the province and turn back to Alberta in the hunt for future prospects.
It's a major reversal from a few years ago, when B.C. in 2008 eclipsed Alberta for the first time in the sale of new exploration rights, bringing in more than double the amount of Canada's energy capital.
That shift appeared to signal a redrawing of Western Canada's energy map. Industry fervour for the potentially prolific shale gas fields of northeastern B.C. remained strong through last June, when the province attracted $404-million in a single auction, one of the largest in Canadian history.
But then the money began to dry up. This year, B.C. has collected just $17-million in three auctions, putting it on pace for its worst year of exploration land sales in nearly two decades. If the trend continues, the final tally would be down about 90 per cent from the $844-million invested in 2010.
The collapse indicates that energy companies' view of future prospects in the province has radically dimmed. It's bad news for the provincial treasury, which already has a gaping deficit of nearly $1-billion in its budget.
It also means fears that Alberta, Canada's long-time energy leader, had lost its edge have proven far from true. Alberta - after cutting back on royalty increases charged to energy companies - has decisively reclaimed its lost crown. The province has already hauled in $777-million and is easily on pace for its second-successive $2-billion-plus year for land sales.
Several major factors are at play, industry leaders say. Alberta offers new oil plays in addition to natural gas, which has helped buoy land sales. B.C., reliant almost solely on natural gas, has watched the price of the commodity languish, which has severely dampened industry interest. Also, B.C. gas is located in rugged and remote terrain, expensive to develop and distant from markets.
"Alberta is a lot more favourable than B.C. now. It used to be the reverse," said Brian Lavergne, chief executive officer of Calgary's Storm Resources Ltd., which is drilling for shale gas in B.C.'s Horn River basin.
B.C. already has a generous low-royalty regime in place for the Horn River, which helped spark buying activity in an area that could produce great quantities of gas - though it is costly and complicated to drill.
Several companies, including Encana Corp., have been approved for the special low-royalty regime, which is mirrored on the oil sands in Alberta where producers can recoup costs before paying money to the government.
But the energy business wants more. B.C.'s new Energy Minister, Rich Coleman, recently travelled to visit executives in Calgary, where industry leaders indicated they'd like to see an expansion of the special low-royalty program. Mr. Coleman, in an interview, said the province will consider the request.
Among the challenges B.C. faces is the suggestion that most of the best land, in areas such as the Horn River and Montney, has already been secured. In a four-year land-sales rodeo - 2007 through 2010 - energy companies paid $5.44-billion to the government in Victoria.
"There's not all that much land available" any more, said analyst Robert Fitzmartyn of FirstEnergy Capital.
The same thing happened in the oil sands. From 2006 through 2008, companies spent $2.9-billion on land. Since then, the province's take has fallen 98 per cent to $53-million. All the money rolling now into Alberta is for conventional oil and shale gas.
The loss of land-sales cash for B.C. is significant, given that - like other provinces - it has a large deficit, forecast to be $925-million in 2011-12. The gap in land sales income could become a challenge for the Liberal government of Christy Clark, the new Premier, and threatens the province's goal to get back to a surplus position by 2013-14.
"I don't tie everything to land sales," Mr. Coleman said. "It's activity on the ground that's more important to us, because that's the long-term jobs."
The B.C. budget does not reflect this. B.C. and Alberta account for land sales differently. Alberta counts the cash as it comes in. B.C. accounts for it on a rolling basis, averaged over eight years. In the current 2011-12 budget, land sales revenue is pegged at $929-million, bolstered by the big 2007-2010 years. The figure is more than double the $447-million that natural gas royalties are expected to bring in, amid low gas prices. The numbers, however, do not reflect jobs on drilling rigs, pipeline operations and other industry activity, all of which produce jobs and incomes for workers, and taxes for Victoria.
Mr. Coleman said the next auction of exploration rights, set for late April, could attract more interest.
"It goes in phases," Mr. Coleman said. "We can never compare our numbers to Alberta, because they're drilling for oil, too."